Düsseldorf-based Gerchgroup has become the latest real estate developer in Germany to file for insolvency as the sector's troubles deepen.
According to German media reports, the group has initiated insolvency proceedings for four holding companies, while its operationally active project companies, covering ongoing development projects, are said to be exempt. These too, however, are expected to have to seek alternative credit lines as they are financially dependent on the holding companies.
An office and mixed-use urban developer operating nationwide, Gerch states on its website that it has a development portfolio worth €4 bn.
The company is the latest in a wave of insolvencies to sweep the German real estate market this summer, as a combination of higher interest rates, soaring construction costs and difficulty in obtaining finance take their toll.
Euroboden, a Munich-based developer, Project Immobilien, based in Nuremberg, and Development Partner and Centrum Group, both based in Düsseldorf, have all hit the ropes in recent weeks.
Euroboden, which has €115 mln in bonds outstanding, said in a statement that negotiations for property sales had fallen through, hurting its finances.
‘The market outlook for project developers continues to be negative,’ the company said, citing high construction costs and interest rates, a slump in demand, and difficulty in getting credit.
At the time it filed for insolvency in July, Centrum Group cited a ‘toxic triangle’ of cost increases, higher interest rates and stalled investment as reasons for its slide.
The dramatic turn of fortune follows a long spell of cheap money that fuelled a boom in German real estate, a sector accounting for roughly a fifth of the country's economic output and one in 10 jobs.
Compounding the problems in the sector are a sharp decline in new building permits, notably for housing projects, amid falling residential property prices and slowing construction job growth.
Market watchers expect more real estate casualties in the coming weeks as financing issues snowball and companies are forced to make writedowns on their portfolios and assets.